MC Exclusive | RBI asks banks to show prudence with banking apps

Mobile banking app

Should banks operate multiple apps catering to the same customer segment? This is the question the Reserve Bank of India (RBI) has raised with several banks, according to sources familiar with the matter.

The query follows a series of disruptions experienced by banking apps, which have led to concerns about reliability and customer service.

Some banks have expressed concerns, arguing that the RBI's inquiry touches on the internal management decisions of financial institutions. However, sources suggest that the RBI's messaging is currently more of an informal nudge based on presentations made by the banks on this issue.

A more structured or formal stance on the matter may be released by the regulator in the future. Banks have been given time until June to respond to the query.

RBI's concern stems from the apparent redundancy of having multiple apps within the same bank serving similar customer segments.

For example, if there is a banking app which sharply targets retail customers, the RBI is questioning why the bank should build another app to target the same segment of customers.

There are multiple examples of this. For instance, there is the Kotak Bank app and the Kotak 811 app. Another example is the IndusInd Bank app and Indie app from the same bank. Similarly, there is the standard HDFC Bank app and Payzapp app.

These apps are primarily focused on catering to the retail customers, and invariably, the main banking app and the specialised retail app have multiple overlaps in terms of product offering.

“If this be the case, the regulator is questioning banks on the need to have two different apps to cater to the same segment of customers,” said a banker aware of the matter. Adding to this, he said there was a time about about 4-5 years ago when a few banks created a separate unit to house these newly developed banking apps. “The idea was to project these apps as a digital bank within the bank and bolster the overall valuations of the bank,” he said.

However, with the regulator not supportive of the idea of carving out an application and calling it a digital bank, this idea barely took wing, said another senior banker. “Consequently, what is also happening is that there is a spilt in resources between the main banking app and the newly created one, whether in terms of technology infrastructure, manpower or financial allocation,” the banker added.

The RBI is of the view that such duplication of resources may be reducing the overall efficacy of the banks’ app offerings and hence has asked a few banks to rethink their strategy of serving customers through banking apps.

Email sent to RBI seeking confirmation on this matter remained unanswered.